Legal Question in Real Estate Law in California

How much would the deficiency be, if you did a strategic default? Regular financial institutions tend to foreclose by trustee sale, after which there can be no deficiency judgment, precluding theopportunity to go after other assets, especially assets in another jurisdiction. The prospect of a relatively small shortfall in a foreclosure sale would not tempt the lender to go to court for a judicial foreclosure and deficiency judgment. Further, if the rental loan is purchase money, it is probably exempt from deficiancy judgment under another statute, but a zero-interest loan may be an unusual situation, maybe not. In any case, we are discussing whether you are 100% safe or only 95% safe. The chances of a lender pursuing your Texas property are low to nil.

It depends on what the bank does about the default. There is a 99% or better chance that they will use the power of sale in your mortgage to conduct what is called a "trustee's sale" and in common language a "foreclosure." That would involve no court proceedings. There is a slim chance, because you have other assets, that they would go to the trouble and expense of a "judicial foreclosure," which involves suing for default on the debt, and having the property sold by the court as part of that case. If they go the trustee's sale route, California law prohibits them from trying to recover any deficiency. If they go the judicial foreclosure route, however, they will get a judgment for any deficiency after the court sells the house (it will also sell for less, because there are redemption rights in a judicial foreclosure that don't apply to trustees sales and that could come back to bite a buyer; so they pay less). That deficiency judgment would then be enforceable like any other judgment, including registering it in other states such as TX, and then using whatever judgment collection processes are available in that state.

I agree with Mr. McCormick and Mr. Whipple. The bank could only get a deficiency judgment if they elect to sue you for judicial foreclosure. At that point, the issue is whether or not the loan qualifies for puchase money deficiency protection under Code of Civil Procedure section 580b. You don't provide enough information about the nature of the original loan, or whether you refinanced, and determining whether something is a purchase money mortgage involves detailed analysis of the underlying facts.